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8/9/14: Barron’s discusses the recent performance of several investments that contain exposure to Russia and consults Eric Fine on the outlook for emerging markets bonds. "Russia is such a big part of the [JPMorgan Emerging Markets Bond] index that most investors satisfied themselves with underweight positions. But what if they all decided to go to zero weight after the sanctions?"View article »
7/30/14: Investment News asks investment experts to weigh in on the implications of Argentina’s default. According to Eric Fine, “It [Argentina] offers good upside relative to the downside. We want to have exposure.” View article »
6/10/14: InvestmentNews filmed on-the-ground interviews with portfolio managers at the Pershing INSITE 2014 conference to learn their ideas on maximizing yield in the current market environment. According to Eric Fine, who recommends considering emerging markets, “If they’re [investors] looking to emerging markets for yield, it should be in unconstrained form.”View article »
5/3/14: Bloomberg News consults Eric Fine on the growing conflict between Russia and Ukraine. “If the conflict doesn’t stop here and now, it is likely to expand,” he says. “Ukraine itself has few natural borders, and there are other ethnic Russian communities in other countries that could invoke similar tensions.”View article »
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By: Eric Fine, Portfolio Manager
The Fund’s biggest winners were Venezuela and Brazil in hard-currency
and Israel in both local-currency and hard-currency. The Fund’s
biggest losers were positions in Argentina, Indonesia, and Uruguay.
The first news is
that the ECB moved to a negative deposit rate in the face of continuing
demand weakness, and a view that inflation pressures are benign. In
our view, a key effect of this remains that it represents a revolution
in central bank thinking and behavior; only Denmark has made such
a move. If one reserve-currency central bank (the Fed) uses money
quantity as a tool, and the other reserve-currency central bank (the
ECB) eliminates the zero percent floor for interest rates, then everything
is now theoretically on the table in terms of future responses by
all central banking authorities. More specifically though the Fed’s
quantitative tools effectively anchored the long end of bond curves, and
now the ECB’s tool should anchor the front end, perhaps for several
years. Anchoring the front end is different and important, as it means
actual derivative contracts and bonds may roll down to an even lower
rate in a certain time horizon. In short, the ECB’s move may be good for
global bonds and for duration.
The Fed’s communications seem increasingly at odds with strengthening
U.S. data. The bond market’s rally and sell-off
are testament to this. We
see this tension as likely to persist because the longer it continues,
the closer we could get to a mature economic recovery set to turn
downward. If the Fed waits long enough, historically normal
recoveries point to an eventual downturn that may make tightening
discussions problematic. Related to this, if the Fed does begin to tighten
(or communicate in that direction), it may mark a major change
in what we believe is the most important determinant of all asset prices, and any resultant adverse feedback
may put downward pressure on longer term
yields, and even risks backfiring completely. In our opinion, this tension is likely positive for the U.S.
dollar over the Euro, and points to volatility for duration.
The ECB’s easing and the Fed’s dovish communications could point to
emerging markets currencies (EMFX) strength, challenging our view of
owning hard-currency over local-currency. The ECB seems to be forcing
savers out of cash and investors out of the front-end of the yield curve and
into anything else. The Fed has already done this but is saying it could
continue to do so. This combination typically points to a major risk-on
trade, and EMFX and other risk trades behaved accordingly in the days
surrounding these developments.
Read full June Commentary >>
Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Strategy
View now »
Eric Fine and Natalia Gurushina
Portfolio Manager and Economist, Van Eck Unconstrained Emerging Markets Bond Investment Team
Portfolio Manager, Van Eck Unconstrained Emerging Markets Bond Fund
Improvements in economic policies, strong balance sheets and improved creditworthiness of local governments continue to foster a strong case for investment in the emerging markets bonds.
Emerging Market Bonds Defined
“Emerging Markets Hard Currency Bonds” are bonds denominated in foreign currencies that are generally widely accepted around the world (such as the US Dollar, Euro or Yen).
“Emerging Markets Local Currency Bonds” are bonds denominated in the local currency of the issuer.
“Emerging Markets Sovereign Bonds” are bonds issued by national governments of emerging countries in order to finance a country's growth.
“Emerging Markets Quasi Sovereign Bonds” are bonds issued by corporations domiciled in emerging countries that are either 100% government owned or whose debts are 100% government guaranteed.
“Emerging Markets Corporate Bonds” are bonds issued by non-government owned corporations that are domiciled in emerging countries.
Long term, an allocation to emerging markets bonds may provide diversification benefits as emerging markets fixed income tends to be less correlated to developed market fixed income.
Unless otherwise stated, portfolio facts and statistics are shown for Class A shares; other classes may have different characteristics.
†NAV: Unless you are eligible for a waiver, the public offering price you pay when you buy Class A shares of the Fund is the Net Asset Value (NAV) of the shares plus an initial sales charge. The initial sales charge varies depending upon the size of your purchase. No sales charge is imposed where Class A or Class C shares are issued to you pursuant to the automatic investment of income dividends or capital gains distribution. It is the responsibility of the financial intermediary to ensure that the investor obtains the proper “breakpoint” discount. Class C, Class I and Class Y do not have an initial sales charge; however, Class C does charge a contingent deferred redemption charge. See the prospectus and summary prospectus for more information.
1Van Eck Associates Corporation (the “Adviser”) has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 1.25% for Class A, 1.95% for Class C, 0.95% for Class I, and 1.00% for Class Y of the Fund’s average daily net assets per year until May 1, 2015. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
2The J.P. Morgan Government Bond Index-Emerging Markets Global Diversified (GBI-EM) tracks local currency bonds issued by Emerging Markets governments. The index spans over 15 countries. The J.P. Morgan Emerging Markets Bond Index Global Diversified (EMBI) tracks returns for actively traded external debt instruments in emerging markets, and is also J.P. Morgan’s most liquid U.S-dollar emerging markets debt benchmark.
3Average Yield to Worst measures the lowest of either yield-to-maturity or yield-to-call date on every possible call date. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Effective maturity is the length of time until a fixed income investment returns its original investment. Distribution Yield is the amount of cash flow paid out and is calculated by dividing the annual income (interest or dividends) by the current price of the security. Averages are market weighted. These statistics do not take into account fees and expenses associated with investments or the Fund.
The views and opinions expressed are those of Van Eck Global. Fund manager commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Any discussion of specific securities mentioned in the commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. The Fund is subject to risks associated with its investments in emerging markets securities. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. As the Fund may invest in securities denominated in foreign currencies and some of the income received by the Fund will be in foreign currencies, changes in currency exchange rates may negatively impact the Fund’s return. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. The Fund may also be subject to credit risk, interest rate risk, sovereign debt risk, tax risk, non-diversification risk and risks associated with non-investment grade securities. Please see the prospectus and summary prospectus for information on these and other risk considerations.
Investing involves risk, including possible loss of principal. An investor should consider investment objectives, risks, charges and expenses of the investment company carefully before investing. Bond and bond funds will decrease in value as interest rates rise. The prospectus and summary prospectus contain this and other information. Please read them carefully before investing.
Not FDIC Insured — No Bank Guarantee — May Lose Value
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